Renminbi Breaches 7 against the Greenback, PBOC Seeks to Reassure Markets

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The renminbi has recently fallen through the threshold of 7 against the US dollar, prompting the People’s Bank of China (PBOC) and Chinese state-owned media to issue remarks to reassure markets.

On 16 September the onshore renminbi broke through the threshold of 7 against the US dollar for the first time since July 2020, as the greenback continues to ride high on the the Federal Reserve’s ongoing run of hawkish rate hikes.

PBOC officials made haste to reassure markets over the implications of the recent decline in the renminbi through a key psychological threshold.

“While the renminbi exchange rate has broken through 7, this ‘7’ is not an age number that will won’t come back after it’s passed,” a PBOC official said. “Nor is it like a dyke that once broken will cause a massive flood.

“This ‘7’ is more like the water level in a reservoir, which will rise slightly when waters are high and decline during dry periods.”

State-owned media also cited the opinions of domestic experts on the matter of the renminbi’s fall through the threshold of 7.

“These periodic, short-term, small-scale depreciations are normal, and the renminbi exchange rate is intrinsically subject to bidirectional fluctuations,” said Dong Dengxin (董登新), head of the Financial Securities Research Institute at the Wuhan University of Science and Technology, to China News.

“The renminbi exchange rate basically fluctuates between 6 and 7 or so, so ‘breaching 7’ is still within the scope of a rational ranged and the renminbi exchange rate remains stable as it was before.”

Wen Bin (温彬), chief economist with China Minsheng Bank, said that the recent depreciation of the renminbi was primarily due to the US Federal Reserves accelerated tightening of monetary policy in a bid to contain high inflation.

“Following the continued strengthening of the US dollar index, non-US dollar currencies including the renminbi have all seen declines various extents,” Wen said.